China's factories keep chugging along

China’s factories continued to chug along nicely in February,
showing little sign of slowing down after a sharp recovery in the
second half of last year.

The official China manufacturing purchasing managers index (PMI)
released by the National Bureau of Statistics (NBS) rose by 0.3
points to 51.6 last month, beating market expectations that were
centered around a slowdown to 51.1.

The PMI measures changes in activity levels across China’s
manufacturing sector from one month to the next, and ranges from
a score of 0 to 100. 50 is deemed neutral, with anything above
this level indicating that activity levels improved. A reading
below 50 suggests activity levels declined. The distance from 50
indicates how quickly activity levels improved or declined
compared to a month earlier.

So at 51.6, activity levels not only improved, but increased at a
faster pace.

Aside from the 51.7 reading of November last year, today’s result
marked the fastest expansion since July 2014.

No, there’s no sign of a slowdown yet, and perhaps explains why
commodity prices — broadly — continued to push higher in
February.

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By survey component, production lifted at the strongest rate
since November last year while imports grew at a faster pace than
January.

Indicating that demand remains strong — both from home and abroad
— the gauge measuring new domestic orders rose to 53.0 while
those from overseas ticked up to 50.8, the highest level in
several years.

As a lead indicator, that also suggests that activity levels will
likely remain firm in the months ahead.

Reflective of strong production levels firms also laid off staff
at the slowest pace in over 12 months.

The NBS said activity levels improved at larger manufacturers,
helping to offset weakness at small and medium-sized firms.

The PMI for larger manufacturers increased by 0.6 percentage
points to 53.3. The index for medium-sized firms fell 0.3
percentage points to 50.5 while that for smaller manufacturers
was unchanged at 46.4.

Like the manufacturing sector, other parts of the economy also
performed well last month.

The separate non-manufacturing PMI released by the NBS came in at
54.2 in February. While down from the 54.6 level January, it
indicates that activity levels continued to expand but at a
slightly slower pace.

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The NBS said business activity levels continued to expand
strongly in railway transportation, telecommunications, IT and
financial services, all recording PMI’s of more than 55.

There was also no sign of a slowdown in the nation’s
all-important construction sector. Its PMI dropped 1 point to
60.1 in February, indicating that activity levels continue to
expand at a rapid pace.

Strength in those sectors helped to offset declines in retail,
road transport, catering, real estate, residential services, said
the NBS.

The twin reports — despite small fluctuations during the month —
were very much as expected, and continue to point to
strengthening economic conditions in early 2017.

And, to Wei Li, China and Asia economist at the Commonwealth,
expects that trend to continue.

“The improving trend in the PMI data is supportive our China GDP
growth forecast for 2017, at 6.8% in 2017, versus 6.7% in 2016,”
he says.

“As we have said many times before, the all-important,
five-yearly Chinese leadership reshuffle, scheduled for Q4 2017,
means the government will ensure a robust economy by all means.”

Chinese premier Li Keqiang will reveal the government’s key
economic and social targets for 2017 — including GDP — at the
start of the annual National People’s Congress meeting on Sunday,
5 March.